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DIVISION OF FINANCE
Committed to Service Excellence
Service Department
Rate Study
Training
Katy Oliphint, Financial Analyst II
Office of Cost Analysis
May 2011
DIVISION OF FINANCE
Training Agenda
• Service Department Basics
• Rate Study Requirements
• FY12 Changes
• Best Practices
2
What is a Service Department?
• An operating unit within TAMU that provides a
service or product to users that are primarily within
the university
• Charges a fee for those good/services in order to
recover its costs
• Exists for reasons of convenience, efficiency, or
because the product is not otherwise available to the
TAMU system community
3
Governing Policies
• System Regulation 21.01.05
• University Rule 21.01.05.M1
• University Rule 23.02.02.M1
• OMB A-21, A-133, A-87 (Federal)
• Cost Accounting Standards (Federal)
4
Service Department
Requirements
• Must fit the mission of the University
• Needed service can best be provided within the
University or is not readily available outside of it
• Designed to be breakeven operation
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Service Department
Requirements
• Service department managers must retain adequate
documentation of rate studies (for at least 3 years
plus current year).
• All users of the service should normally be charged.
• Primary users should be internal System
departments.
6
Why Are Rate Studies
Required?
• Service departments often charge federal programs
(sponsored/grant agreements) and costs charged to
such programs must be in compliance with federal
regulations.
Note: The requirements still apply even if users are mostly or
entirely non-grant accounts.
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Rate Study Requirements
• All service departments must conduct a rate study
annually and submit it to the Office of Cost Analysis
(OCA).
• Service departments are allowed to change rates in
the middle of the year after the rate changes have
been approved by the OCA.
8
What is a Rate?
• The amount charged to recover the cost associated with
producing a good or providing a service.
• Rate = annual federal allowable costs for good/service (g/s)
the total annual billing units associated with g/s
• Rates charged to TAMUS users MAY NOT be greater than
those charged to non-TAMUS users.
9
Calculating a Full Cost Rate
Full Cost Rate =
Total Expenditures**
Number of Units
**(Salaries/Benefits + Supplies/Materials + Cost of
Goods Sold (if applicable) +Other Major Expenses
+Equipment Depreciation +/- PY Deficit/Surplus)
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Calculating a Subsidized Cost
Rate
Subsidized Cost Rate =
Total Expenditures** - Subsidies
Number of Units
**(Salaries/Benefits + Supplies/Materials + Cost of
Goods Sold (if applicable) +Other Major Expenses
+Equipment Depreciation +/- PY Deficit/Surplus)
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Service Departments with
Multiple Services
• Separate billing rates must be established for each
line of service.
• Costs should be allocated among the different lines
of service to determine the rates.
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Non-Discriminatory Rates
• All internal users should be charged the same rate for
the same level of services or products purchased in
the same circumstances.
• External users may be charged at a higher rate.
• Federal agencies should always be charged the
lowest rate.
13
Costs Which Cannot Be
Recovered through Rates
• Purchase price of capital equipment
• Building depreciation
• Depreciation of equipment purchased by federal
funds
14
Costs Which Cannot Be
Recovered through Rates
• Inventory not consumed in year of purchase
• Inflation on capital equipment
• Facilities expense (utilities, maintenance, and
custodial cost) paid directly by the University and not
recorded in the service department account
15
Things to Watch Out For
• Be careful when allocating 100% of costs (like
salaries and service agreements) to the service
department because some of the time may be used
for teaching or research. Only allocate that portion
related to the service department activities – do not
include the teaching and research portion in the
rates.
• Overhead costs (administrative assistant salary,
office supplies) must be reasonable and necessary to
the operations of the service department in order to
build into rates. 16
Depreciation
• Please use Canopy or Business Objects to run an
official depreciation report from FAMIS to include
depreciation in your rates.
• A report in Canopy can be run through the FFX
module (fields you need are listed in the template
instructions).
• The Business Objects report should be ready in 3-4
months.
17
Equipment Rules
• All capital equipment and required installation costs
must be purchased from a renewal and replacement
account (i.e., capital expenditures should not be
purchased out of the 27xxxx account).
• Each service department should have a separate
renewal and replacement account (87xxxx) funded
through including depreciation in rates.
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Equipment FAQ #1
• Question: Can I buy capital equipment ($5K or
greater) out of my 27xxxx account?
• Answer: No, replacement equipment should only be
purchased from the corresponding renewal and
replacement account (i.e. 87xxxx).
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Equipment FAQ #2
• Question: What can I purchase out of my 87xxxx
account?
• Answer: You can purchase capital equipment and
pay for major repairs expense.
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Equipment FAQ #3
• Question: Once I have transferred funds into my
87xxxx account, can I transfer funds back into my
27xxxx account?
• Answer: No, once the funds have been transferred to
the 87xxxx account, they cannot be moved.
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Equipment FAQ #4
• Question: If I don’t include equipment depreciation
expense in my rates, can I still build a capital
reserve?
• Answer: If no depreciation is included in rates, a
capital reserve can only be built through external
customer revenue; however, unrelated business
income tax (UBIT) must also be considered when
receiving revenue from external customers.
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Equipment FAQ #5
• Question: How do I buy new equipment if I don’t
have an established capital reserve?
• Answer: The funds to support the cost will have to be
identified elsewhere (subsidy, school, department,
debt issue). If an 87xxxx has been established, you
may buy the equipment from there.
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90 Day Reserve Requirement
• Current, departments are only allowed to keep a
maximum of 90 days of working capital in reserves
(University Rule 23.02.02.M1).
• Depreciation included in the rates should be
transferred out of the fund balance and into the
renewal and replacement account (87xxxx).
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90 Day Reserve Requirement
• Departments may lower the fund balance by
including the prior year surplus in the rates and
reducing them.
• External profit can be moved to the 87xxxx to reduce
the fund balance.
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New System Regulation
• A revised system regulation for service departments
is currently in progress and should be finished by
8/2011.
• A new SAP will be written and will most likely replace
the current University Rule.
• One of the main changes is decreasing the fund
balance reserve requirement maximum from 90 days
to 60 days in order to be in compliance with OMB A-
87.
26
Rate Study Template
• An excel spreadsheet is available to help calculate
rates.
• Departments are not required to use the template.;
the Office of Cost Analysis can help tailor one to your
specific department’s needs.
• Individual training and assistance is available year-
round.
• Getting Started handout on website is helpful
27
FY12 Template Changes
• FY12 instructions are included on a tab within the
rate study template.
• You will enter FY10 actual expenses in a column in
the template instead of filling out two templates this
year.
28
FY12 Template Changes
• The internal support cost tab has been renamed
“Overhead.” The definition is the same – it is a title
change only.
• A “Fund Balance” tab at the end has been added to
calculate the fund balance reserve requirement.
29
Self-Certification Checklist
• After finishing the rate study templates, you will need
to complete the Self-Certification Checklist.
• The department head and service department
manager must certify that the rate study has been
prepared in compliance with the current University
and Federal policy to the best of their knowledge.
30
Upload to Extranet
• The OCA has set up a Sharepoint extranet site to
keep all rate studies in one location.
• Each service department will upload their rate
studies, signature pages (scanned in), and self-
certification to the extranet site.
• Each service department will have access to the
previous year’s rate documentation.
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Upload to Extranet
• The OCA will assist you to make sure you have
access and understand how to upload and use the
files.
• Changes can be made to the rate study templates
through the extranet site instead of sending the rate
studies back and forth over email.
32
After Completion of Rate Study
• Rate study is reviewed by appropriate levels.
• Analyst sends commentary that includes
recommendations to service department to review.
• Department required to respond to analyst regarding
recommendations.
• Analyst sets up meeting to discuss recommendations
and comments with department if necessary.
33
Rate Study Recurring Issues –
Don’t Make These Mistakes!
• Rate studies are not completed in a timely manner or
not completed at all.
• Fund balances in excess of allowable 90 day
expenditure level are being retained.
• Departmental activity or units are operating as
service departments on campus but have not yet
followed the required process.
34
Rate Study Recurring Issues –
Don’t Make These Mistakes!
• Historical costs are not incorporated for comparison
to projected costs.
• Capital equipment is purchased directly from the
service department account rather than from the
appropriate renewal and replacement account.
• Instead of calculating rates based on projected costs,
rates are backed into based on revenue needed.
35
Rate Study Recurring Issues –
Don’t Make These Mistakes!
• Rates adjustments are made to be in line with the
market but result in one group of customers
subsidizing another.
• Service department rates do not include internal
overhead cost recovery.
36
Service Department Audit
• In April, System Internal Audit is starting an audit of
service departments.
• The outcome of the audit could potentially affect
service department issues going forward.
• The OCA will communicate potential changes that
need to be made to the service departments as a
result of the audit.
37
Things That Auditors Check
• Billing rates are adjusted each year to eliminate
surpluses and deficits which accumulate over time.
• Duplicate and unallowable costs are excluded in
calculating rates.
• Funds are not being used for unrelated purposes.
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Things That Auditors Check
• All users are being charged equitably, meaning
billed users cannot subsidize unbilled or under billed
users.
• Approved billing rates are being used.
39
Website Information
• Items on the website
– New Service Department Setup Process
– Deadlines
– Forms and Templates
– Helpful Hints
– Policies and Compliance
– Contact Information
– Training Dates
http://finance.tamu.edu/controller
40
Questions?
• You can check out our website:
– http://finance.tamu.edu/controller
• We are also on Aggie Answers:
– http://texasamucfo.custhelp.com/app/answers/list/
p/163
41
Office of Cost Analysis
Contact Information
• Kathy Hubbard, Director
– [email protected]; 458-3957
• Cherise Morgan, Financial Analyst II
– [email protected]; 458-1176
• Katy Oliphint, Financial Analyst II
– [email protected]; 862-3326
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